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Does condo association need to pay property tax on loan?

Posted on Fri, Aug 17, 2012 @ 07:31 AM
  
  
  
  

We are a 42 unit association in Bergen County, NJ. The association owns the super's apartment which it recently took a loan against. The entire proceeds from the loan went to into maintenance of the units including common area repairs, vendor debts, etc... Does the association now have to pay property taxes on this unit?

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Will condo association loan show up on financials if I sell my unit?

Posted on Tue, Mar 13, 2012 @ 07:15 AM
  
  
  
  
My condominium complex association recently took a loan on the entire property. I do not know the specifics of the loan and am currently investigating it. If I try to sell my unit will this loan show up when selling?

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FHA approved and bank-owned unit in condo association wont sell

Posted on Tue, Aug 16, 2011 @ 07:01 AM
  
  
  
  
JP Chase owns one of our units and has turned away potential buyers with switch and bate tactics, like mandating our condo association becomes FHA certified (which we succeeded in doing), then pulling the rug from under the poor citizen applying for the loan. After the closing process succeeded, JP Chase said, "We want to auction this property off, instead." This is not legal and I have spoken to the applicant. Like any individual, he fears retribution if he sues his bank. JP Chase has managed to hold on to this property for 3 years now, switching and bating every new applicant, along the way. Is this legal? We are a small Association, FHA approved with 11 owners as residents. We have an excellent Board (I am VP of Board) however, we have never used an attorney in 30 years. This situation has never surfaced before. Are big banks this greedy? Our Board meeting is Tuesday and I fear an investor will purchase without notifying us. Can investors do this?

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Should condo association take loan from owner for repair project?

Posted on Fri, Jul 01, 2011 @ 08:14 AM
  
  
  
  
I live in a 10 unit condo in California, we have for years needed to do dry rot and termite repairs and currently this is underway again. In our condo reserve we are scheduled to replace decks at 2 units next year, however work is going on at one of these units and the homeowner offered to loan the condo association the money to install the decks this year and avoid having another set of contractors come in and be able to use the existing scaffolding. Is there any reason not to accept this offer?

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Is my condo association loan interest payment a tax break?

Posted on Wed, Feb 24, 2010 @ 07:25 AM
  
  
  
  

hoa loansMy condo association levied a $37,700 assessment to the home owners asking for up a upfront payment or pay monthly on the condo association's loan. Those that went the condo loan route signed liens and are paying principle and interest over the loan term of 15 years. Can I deduct the interest from my taxes, since I do receive an annual interest statement.

Learn more about condo association loans

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How Times Have Changed the Pricing of Condo Association Loans

Posted on Tue, Jul 21, 2009 @ 01:25 PM
  
  
  
  

Increased competition among lenders has led to more competitive pricing and more flexible loan terms. Condo Association loans that would have been written at 2.5% to 3% over the prime rate in the early 1990s are now priced closer to 1% to 1.5% over prime (and in some cases lower). Loan amortizations have also changed. Three to five years was considered a reasonable repayment schedule in the early 1990s. It is not uncommon now to see seven to ten year repayment schedules. As a result of lower interest rates and increased amortizations, condo associations are finding that their borrowing power has increased. In fact, today the average loan size is probably in the $300,000 to $500,000 range, where as ten years ago it was $100,000 to $150,000.

The long-run stability of the condoassociation is still of utmost importance to the bank, since repayment of the loan will depend upon maintaining a viable organization. Bankers are still concerned with the historic operating results of the condo association: Are the condo fees being set at a reasonable level from one year to the next? Is the condo association systematically building a reserve account? Is the physical plant being maintained and in overall good condition? How do the monthly HOA assessments (including debt service on the proposed loan) measure up with other similar associations in the marketplace?

High owner-occupancy, professional management, and minimal impact to condo fees due to the loan were high hurdles for many condo associations. While all of these benchmarks are still taken into consideration, requirements are much more fluid as lenders have increased their knowledge. Bankers now focus on the size of the loan in relation to the overall value of the complex, the loan per square foot of livable area and the loan per unit. These factors are tempered with how long the condo association has been in existence, the owner-occupancy rates, the association's management situation, the level of reserves maintained by the association and the impact of the loan repayment on condominium charges.

Learn More About HOA Insurance and HOA Loans

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Why Cant Our Condo Association Get A Mortgage Loan?

Posted on Fri, Jun 05, 2009 @ 07:14 AM
  
  
  
  
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A condo association or HOA cannot get a mortgage loan. That's because the legal structure of a condo association is fundamentally different from that of a cooperative, which can get a mortgage loan.

In a cooperative, an apartment corporation owns the entire building and acts as landlord to all of the residents. Each resident receives a certain number of shares in the apartment corporation and a (proprietary) lease that entitles him or her to occupy their apartment. Since the apartment corporation owns all of the real estate, it has something to mortgage.

In a condominium association or HOA, each owners receives title to an individual unit, as well as to an undivided, pro rata ownership interest in the common elements of the condominium association (the lobby, basement areas, grounds, etc.). Since each person owns a piece of the real estate, each has something to mortgage, and many condo-apartment owners do just that.

Condo associations and HOA can get a special type of loan that uses the right to assess owners as loan security or collateral.  Learn more about HOA loans.

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5 Ways for Condo Associations To Increase Cash Flow

Posted on Wed, Apr 22, 2009 @ 08:20 AM
  
  
  
  
Often condo associations and HOAs get in trouble with their cash flow management because either they are spending too much or condo association members are not paying their condo fees or HOA fees on time or not at all, sometime resulting in default.  Here are some practical ideas to increase cash flow.

Reduce Condo Association or HOA Spending

  • Take a close look at the HOA budget.  Are there service and maintenance items your HOA or condo association can due with out? Maybe there are services that can be performed once per quarter instead of every month or semi-annually instead of quarterly.
  • When was the last time your HOA or condo association negotiated with your vendors or service providers?  If your HOA uses a property management company, they should be doing this for you.  If your HOA is self-managed, have the condo board go out and get competitive bids and bring them back to your current service provider so they have the opportunity to lower their price for you.

HOA Loans or Condo Association Loans and HOA Credit

Whereas a HOA loans or condo association loans will provide a condo association with a one time lump sum, a HOA credit line can be used by a condo association to draw down on during times of cash flow issues. The HOA or Condo Association receives a check book from the condo association loan provider and can use the checks for whatever purposes the condo association sees fit.  Every HOA and Condo Association should have a HOA credit line or condo association credit line in place for future use. 

HOA Assessment

HOA assessments and condo association assessments are the most common and traditional ways to increase cash flow next to raising condo fees.  Unless a condo association credit line is in place, assessments are typically the best way to get a condo association cash quickly, although it can often be painful to condo owners.

Sell Your Condo Fees You Can't Collect On

An option to sending your HOA collections to a lawyer is to sell the condo fee debt to a 3rd party purchaser at a discount who will then try to collect on the debt themselves at a small profit before a condo unit gets into default.  This will get the condo association needed cash much quicker and easier than going the legal route.

Have Your HOA Consider an Automated Pay Solution

Your Condo Association or HOA can receive condo association fees via Bank Account Debiting or Credit Card Payments.  3rd Party payment companies charge a transaction fee and handling fee.  This could help your HOA to get paid quicker.

Save money and time - send your own HOA Collection Demand Letters

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Creative Funding for Condo Associations and HOAs

Posted on Wed, Apr 15, 2009 @ 05:18 PM
  
  
  
  

 

By:  David M. Bendoff

Many a Condominium Association Board finds itself in the position of having to pay for necessary maintenance, repair, or replacement of common elements (e.g., balconies, windows, roofs), but without sufficient monies on hand or income in the annual budget to pay for the work.  A decision often has to be made, then, whether to borrow money and fund the repayment of the HOA loan, or to fund the actual work, through a special assessment.  This requires the Board to analyze a confusing maze of statutory language, the Associations' governing documents, and political considerations.  This article will highlight some of the issues with respect to Association spending limitations for maintenance, repair, and replacement of the common elements, special assessments, the power to borrow money, and the pledge of assets as collateral for a loan.

 BOARD SPENDING AUTHORITY

The Condominium Property Act ("Act") governs the Board's spending authority and provides that the powers and duties of the Board include the operation, care, upkeep, maintenance, replacement and improvement of the common elements.  Nonetheless, expenditure limits are commonly found in a Condominium Declaration.  However, the Act provides that limits in the Declaration are not applicable to expenditures for repair, replacement, or restoration of existing portions of the common elements.  The terms "repair, replacement or restoration" mean expenditures to deteriorated or damaged portions of the property related to the existing decorating, facilities, or structural or mechanical components, interior or exterior surfaces, or energy systems and equipment with the functional equivalent of the original portions of such areas.

Replacement of the common elements can result in an improvement over the original quality of such elements or facilities.  However, unless the improvement is mandated by law or is an emergency, if the improvement results in a proposed expenditure exceeding five percent (5%) of the annual budget, the Board, upon written petition by unit owners with twenty percent (20%) of the votes of the Association delivered to the Board within fourteen (14) days of the Board action to approve the expenditure, must call a meeting of the unit owners within thirty (30) days of the date of delivery of the petition to consider the expenditure.  Unless a majority of the total votes of all unit owners in the Association are cast at such a meeting to reject the expenditure, it is ratified.  The Board should build the potential for unit owner petition/vote, if applicable, into the time line for this project.  Note that "emergency" means an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the unit owners.

SPECIAL ASSESSMENTS

Any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget must be separately assessed against all unit owners.  In general, if any separate assessment adopted by the Board would result in the sum of all regular and separate assessments payable in the current fiscal year exceeding 115% of the sum of all regular and separate assessments payable during the preceding fiscal year, the Board, upon written petition by unit owners with twenty percent (20%) of the votes of the association delivered to the Board within fourteen (14) days of the Board action, must call a meeting of the unit owners within thirty (30) days of the date of delivery of the petition to consider the separate assessment.  Unless a majority of the total votes of all unit owners in the Association are cast at such a meeting to reject the separate assessment, it is ratified. 

Notably, the Board may adopt separate assessments payable over more that one fiscal year.  With respect to multi-year assessments, the entire amount of the multi-year assessment is deemed considered and authorized in the first fiscal year in which the assessment is approved.

Parallel to the spending authority guidelines discussed earlier, the Act provides that separate assessments for expenditures relating to emergencies or mandated by law may be adopted by the Board without being subject to unit owner approval.  But assessments for additions and alterations to the common elements or to association-owned property not included in the adopted annual budget, must be separately assessed and are subject to approval of two-thirds of the total votes of all unit owners. 

ASSOCIATION LOANS

Unless the Condominium Association's Declaration provides otherwise, the Not-for-Profit Corporation Act authorizes Condominium Associations to borrow money.  Loans to a Condominium Association or HOA are typically secured by a pledge of Association assets (e.g., right to receive future income, bank accounts) and not by a mortgage on real estate.  One section of the Act does not require a unit owner vote in the event that the Association proposes to pledge all or substantially all the property of the Association as collateral for a condo association loan or HOA loan; however, another section provides that, unless the condominium instruments expressly provide to the contrary, a majority vote of the entire Board may assign the right of the Association to future income from common expenses or other sources and to mortgage or pledge substantially all of the remaining assets of the Association.  If the Association's Declaration is silent on the issue, the pledge of all or substantially all of the property and assets of the Association may be approved by majority vote of the entire Board.  However, the Board must be mindful of whether the Declaration requires unit owner approval for a pledge of all or substantially all of the property and assets of the Association.

If the Declaration requires unit owner approval to pledge all or substantially all of the assets of the Association, and such approval is impractical or can not be obtained, the Association should work with its lender to limit the required pledge to an amount that is less than substantially all of the Association's assets.  For example, a pledge of the special assessment, and not regular assessments, may be acceptable to the lender and, depending on the Association's financials, may result in a pledge of less than substantially all of the Association's assets.

ASSOCIATION LOAN ALTERNATIVE

In lieu of a loan by the Association, the Board could levy a special assessment to fund the cost of the loan, payable by unit owners in lump sum.  This would allow individual owners to either use their own funds to pay the special assessment and avoid any interest charges, or to obtain their own loan and take advantage of a potential income tax deduction.  However, there may be circumstances under which the Association can get a loan but the individual owners would not qualify. 

Finally, from a political perspective, it is useful to hold an informational meeting or meetings of the Association to discuss the proposed project before the Board takes action to approve expenditures, a special assessment, a loan, or contracts to perform the work.

More about HOA Loans and Condo Association Loans

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Now's the Time For HOA Capital Improvement Projects

Posted on Fri, Mar 13, 2009 @ 12:25 PM
  
  
  
  

Although you may find the value of your condo unit down, its a great time to invest in condo association or HOA capital improvement projects.

All trade services are currently on sale - many for over 50% discounts because the trades need the work since the economy and housing market has crashed. 

We received a quote to paint our common areas two years ago for $12,000.  The painter called us back one month ago and offered to the same paint job for $5,000.  Needless to say, our condo association went ahead with the painting project.

Some trades that may be offering great home improvement deals include:

  1. Painters
  2. Plumbers
  3. Wallpaper Hangers
  4. Electricians
  5. Brick Layers
  6. Building Cleaners
  7. Carpet and Flooring Installers
  8. Woodworkers
  9. Drywallers
  10. Elevator Installers

Additionally to good time for these capital improvement projects, its also a great time for associations to take out a HOA LoansRates for Homeowners Associations and Condo Associations are currently about 6% which is excellent.

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